Value judgement

Value judgement

November 6, 2018

Jawad Abdulla Ali of Alforsa Real Estate explains the importance of international standards in property valuation and why he’s tied up with the International Valuation Standards Council

Alforsa Real Estate has tied up with the International Valuation Standards Council (IVSC). Arabian Homes spoke to Jawad Abdulla Ali, General Manager of Alforsa, about the company’s new direction.

Why do you think this accreditation is important?
Many people may not know that the reason for major economic setbacks is the illusory values of the global market and real estate, the inflated prices and the value of shares. In the past, much property valuation didn’t conform to international standards – this was a contributing factor to the global financial crisis of 2008 in one way or another, having inflated prices and raised the value of supply and demand on fake lands and real estate, thereby increasing the value of shares, which led to what has been described as a “real-estate bubble”. After that setback, the world woke up to the work of authorities such as the IVSC.

Adjusting to the IVSC’s method and establishing universal standards achieves the real value of real estate. There is also the issue of transparency, which helps to stabilise the real-estate market, reducing the risk for investors. Performance standards and market statistics help investors to estimate their potential future investment returns, which gives any real-estate market strength and stability. For this reason, we are proud to be the first Bahraini property company to get accreditation.

What are the benefits of adhering to these international standards?
The answer is simply to speak the same language – international standards mean that employers, investors, governments, the public and organisers are all on the same page, as it were.

Real-estate valuation helps to establish a clear database of prices for property, building materials and construction areas, and it organises the process of real-estate registration. The existence of this information base is historically documented as a reference to growth and inflation rates, including knowledge of inflation and future growth, which is the basis of the process of planning. It also helps to control prices and provides information about the areas of growth and controls expansion.

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What does an accredited property valuer do?
A property valuer deals with entities such as investors, government institutions and estate agents, but the relationship of the valuer to the property is the assessment only and nothing else. They should have personal neutrality towards the property to be evaluated, as well as integrity. They will submit their report after an extensive study of the value of the property, which includes the geographical area and the broader economic situation.

A valuer should have knowledge of engineering sciences, economics, accounting, financial management and finance – they should be able to estimate the financial returns on a building and calculate the costs of construction and maintenance. They need to complete various courses to be certified by the IVSC.

Why do your clients request a valuation? What purpose does it serve?
We can distinguish between several types of real-estate appraisals. For example, it might be to determine the price requested by the seller, or for tax purposes, or to help a buyer determine the fair price of a purchase. Sometimes it is to determine the relative value of the property for exchange between different parties.

Which different methods are used to value property?
Real-estate valuation is based on three major points in most countries: market approach, cost approach and income approach. There are many forms of valuation because properties have unique attributes and thus do not always resemble each other. The purpose of the evaluation is to establish a real value for the property to all concerned parties.

Other reasons for Valuation:

To identify the assets for exchange when a company merges, liquidates or goes bankrupt

To determine the value of a mortgage loan that usually accounts for a percentage of the market value of the property

To determine the rental of property as a percentage of its value, or for the value of property insurance

To define the cost of construction defects, or to determine property losses due to fire, storms or earthquake

To value a property in the case of divorce and division of property between spouses, or assess the property in multi-party issues

To determine the most appropriate value for using existing properties

To determine whether or not a building is demolished for better reuse, or if the current use is the best use or not, and the value of future expansions

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